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Published by ashu khetan

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Published by: ashu khetan on May 30, 2010
Copyright:Attribution Non-commercial


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Swap is an agreement between two parties,called counter parties, to trade cash flowsover a period of time.Swap is the exchange of one security for another to change the maturity (bonds),quality of issues (stocks or bonds), or investment objectives.Recently, swaps have grown to includecurrency swaps and interest rate swaps.
 Popular form of Swaps
Currency swap involves an exchange of cash payments in one currency for cash payments inanother currency.Interest rate swap allows a company to borrowcapital at fixed (or floating rate) and exchange itsinterest payments with interest payments atfloating rate (or fixed rate).
Structure of Swaps
Swaps are over-the-counter (OTC) derivatives.They are negotiated outside exchanges. Theycannot be bought and sold like securities or futurescontracts, but are all unique.As each swap is a unique contract, the only way toget out of it is by either mutually agreeing to tear it up, or by reassigning the swap to a third party.This latter option is only possible with the consentof the counter party.

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